Could Israel's decision to resume building new settlements derail peace talks with the Palestinians? Margaret Warner looks at the state of the negotiations with Robert Danin of the Council on Foreign Relations and Shibley Telhami of the Brookings Institution.

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MARGARET WARNER:

And, for more, we go to Robert Danin, a former State Department and National Security Council official who headed the office of the quartet of nations and international organizations working on the Mideast peace process. He is now at the Council on Foreign Relations. And Shibley Telhami, a University of Maryland professor and senior fellow at the Brookings Institution. He's conducted numerous public opinion surveys in the Middle East and advised the State Department on Mideast issues.

Welcome to you both, gentlemen. The Israeli press is calling today's announcement, coming as it does, when Prime Minister Netanyahu is here, a major embarrassment. Are they right, Robert Danin, and, if so, to whom?

ROBERT DANIN, senior fellow, Council on Foreign Relations: I think it's an embarrassment to both Prime Minister Netanyahu and to the United States.

Prime Minister Netanyahu came on this visit wanting to make it a positive visit. And, in doing so, by having the Interior Ministry announce this while he's here, it undermines his credibility in the eyes of the administration. Similarly, for the administration, it looks like they're trying to make peace with someone who is not serious.

MARGARET WARNER:

Are you suggesting that this was made in spite of Prime Minister Netanyahu, this announcement, or that he was behind it?

ROBERT DANIN:

I suspect — well, first of all, we don't know. But I suspect this was done to embarrass him. The announcement was made by the interior minister — by the Interior Ministry.

Until now, Prime Minister Netanyahu has been quietly trying to keep things quiet in Jerusalem. But now, when something like this happens, when there's an announcement of housing units in Jerusalem, he is in a corner. He cannot criticize it, because this is a mom-and-apple-pie issue for Israelis and for his coalition, so he has to be — take it quietly. But he knows it's going to infuriate the administration.

MARGARET WARNER:

Shibley Telhami, embarrassment and to whom?

SHIBLEY TELHAMI, professor, University Of Maryland: Well, there's no question it's difficult — it makes it very difficult for the Obama administration. There's no question that, if you look at it from the regional perspective, the American elections were seen as a moment, you know, that everybody had to put up with and then, afterwards, there will be movement.

The Arab League met to support President Mahmoud Abbas returning to direct negotiations. They gave him one month sort of to get back.

MARGARET WARNER:

This was back in October, and they said…

SHIBLEY TELHAMI:

Precisely because of the elections. So, it makes it very difficult.

Nonetheless, I have to say that it makes — it is embarrassing to the administration, no doubt. But, in our public opinion generally in the region, people have assumed settlement was continuing. So, the oddity of it is, it's not seen as something new, but it does make it difficult for President Mahmoud Abbas of the Palestinian Authority, because he said he's not going back unless there's stoppage in settlement.

And happening in Jerusalem, which is the most sensitive issue of all, makes it really difficult.

MARGARET WARNER:

Now, when the White House and Secretary of State Clinton rolled this out in early September, this new track, the parties agreed they were going to have face-to-face talks. They gave themselves just one year to come up with what they called a framework agreement or kind of outlines of a deal. Don't get lost in all the technical details.

Is this fast track off the rails?

ROBERT DANIN:

It's not off the rails yet. But we have already lost two very important months. And, more importantly, the momentum is not being generated. If anything, ill will is being generated. And that is not a — that is not helpful for making fast progress.

MARGARET WARNER:

Do you think this is off the track?

SHIBLEY TELHAMI:

Well, it's not off the track, for the following reason.

I can tell you that it's interesting, because, you know, with all the complaints about the effort — and there have been many reasons to complain about them, because we haven't gotten anywhere — nonetheless, publics in the region still want to see a two-state solution, both of Israel and the Arab state.

Yes, they don't think it's going to ever happen. They lost faith. But most of them believe if in fact it fails, it will be a disaster. No one has an alternative. Arab governments don't have an alternative to the peace process. The Israeli government doesn't have an alternative.

You have a president of the U.S. who put a lot on the line. He went to the U.N. and said, I want to have a Palestinian state, an end-of-conflict agreement within a year. So, I think no one is going to be interested in not giving him a chance to try.

MARGARET WARNER:

And this threat by Prime Minister Abbas to — or President Abbas — to go straight to the U.N. and just ask for declarations, independent state, is that an empty threat?

SHIBLEY TELHAMI:

Well, here's the problem for the Palestinians. One is, on the one hand, there's no question it's not an empty threat in the sense that I think many within their own constituency want them to do that. They're getting a lot of advice. And they have support from Europe.

On the other hand, the biggest asset is that they have an American president who says, I want a Palestinian state as a priority issue for me. It's a national security issue for the United States. I want it to happen within a year.

Can you go against that? And if the president of the United States doesn't want it, would you go against the president of the United States? I don't think it's a real choice, unless they persuade the U.S. administration.

MARGARET WARNER:

Robert Danin, let's go back to how the U.S. has handled this. Couldn't this impasse have been really predicted? In fact, wasn't it in early September? Because they rolled this new thing out just less than a month before this settlement freeze was going to expire. What was the thinking there?

ROBERT DANIN:

Well, I think the real problem is that they started the negotiations, and they were able to get around the settlement imbroglio, but that the first three rounds of discussions didn't go as well as had been hoped for.

And, so, as a result, you saw both I think Prime Minister Netanyahu, but especially President Abbas, become a bit concerned that this negotiation is not moving forward. And so, therefore…

MARGARET WARNER:

So, let me interrupt you. So, you're saying you think that the U.S. thought a certain momentum, real momentum, would be generated right in those first few weeks, so much so that this settlement deadline or freeze deadline expiration, they would just blow right by that?

ROBERT DANIN:

That was the thinking. I think the hope was that, if you're already into deep negotiations, it will make moving through the settlement moratorium a much easier issue.

But what they didn't calculate was, one, that it would be much more difficult for Netanyahu to get through, or at least he would calculate it as such, for domestic political reasons, but also that it would undermine, rather than instill confidence, in President Abbas in this negotiating process.

The first — by all accounts, the first set of negotiations that took place subsequent to the September 2 launching didn't go well, and helped President Abbas conclude that maybe this isn't really going to go very far, or, I don't really have a serious partner.

MARGARET WARNER:

So, briefly before we go, Secretary Clinton and Prime Minister Netanyahu are meeting in New York on Thursday. Is there anything — does the U.S. have the clout or anything it can offer, say or do at this point to revive all this?

And while you're answering this, briefly, factor in the results of the election. Does that in any way embolden Netanyahu or make him harder to persuade?

SHIBLEY TELHAMI:

Well, let me start with that back part.

There's no question that people assume that Netanyahu believes that a Republican-dominated House is going to help him, because he has got a lot more support. And people would want to criticize the president in any case. And, on this issue, they will criticize him some more.

I happen to think that the Arab-Israeli issue is not a major issue in our election. And whether or not the Democrats will win in 2012 is not going to depend on this issue.

What it does mean, though, in terms of having critics on a daily basis in Congress, is that it's difficult for the administration to deal with incrementalism, because every time you have a crisis like this settlement issue, you're going to have critics on the Congress, whatever the president is going to do. So, therefore, there has to be a reassessment of the strategy.

MARGARET WARNER:

Do you agree they have to go back to square one here, or does — does Secretary Clinton have something in her kit bag she can pull out?

ROBERT DANIN:

Well, I think everyone wants to go to negotiations quickly. And they're going to have to make a determination very quickly if they can get on to the negotiating track or if they're going to need to reassess fundamentally the approach they have taken.